Many the small business entrepreneur complains about not being able to charge enough to make good profits. Yet, in the business world around us, we all see businesses who seem to be doing very well and who charge the proverbial “arm and a leg” for what they do. Why is it that some niches seem more capable of avoiding price sensitivity than others? For instance, goods that carry with them a great customer experience command a luxury price. Mark Stiving took note of how the healthcare industry is a conundrum when it comes to pricing. In an article for All Business, he made the following observations:
“It’s something we all need. It’s an industry where there is huge pressure from major insurance companies, the media, governmental agencies, and even consumer groups to cut costs and prices. However, even with these factors prices have never been driven down to commodity levels or even to parity.”
This is in sharp contrast with the experience of many small business owners. I hear all the time about being beat up on price, having to price services in competitive bid situations near the bottom, and many other such war stories. As you can imagine, I often am advising clients to compete on value versus price. Just how does one go about this?
Stiving continues in his piece, noting the following consumer behavior in healthcare:
“How is this possible? Like almost everything in pricing, human psychology is at the root. For example, when was the last time you used price to decide where you were going to have a medical procedure done? When was the last time you even knew the price of the service before going in?
- Human psychology. If you are sharp enough to have built a target market strategy, you have surely thought through who you want to serve. What is often overlooked, however, is how and why people buy. As is pointed out, consumers have habits. Observe the habits and then customize your approach to what you see.
- Insurance company pays. This fact is significant because it illustrates that many buying decisions are facilitated by removing the consumer from having to make a painful (excuse the pun) choice. Think of software as a service as another type of business wherein the monthly $9.99 or whatever you allow to be charged to your card on file is “out of sight, out of mind.” How can you make purchasing easier and less “thinky” for your customers so that the decision is almost automatic? Do you have something that could be billed on a recurring basis at a lower price point?
- But don’t. In describing how healthcare consumers do not look around for alternatives, Stiving makes a keen observation. Even when alternatives exist, they are often not sought out. Those who study consumer behavior far more than me would point out that the trouble associated with switching to something new holds many buyers back from changing to what may even be a better value. How can you use this behavioral paradigm to your advantage? Can you make it easier for others to but from you instead of the competition? How can you make it harder for existing customers to stop buying from you?
Finding a way to address these three issues in your own business will pay off. As you are able to make inroads, you will find that your pricing becomes justified and that you won’t have to fight as hard to maintain price integrity.